In 2004 Oman continued on its path of incrementally privatizing sectors of its economy, replacing increasing numbers of foreign workers with citizens, and taking additional steps to further liberalize the climate for encouraging international investment. Dramatically higher oil prices alleviated predictions of negative economic growth, and the accompanying spike in official revenues not only lessened earlier pressures to increase revenue by raising rates for water, electricity, and gasoline but also produced a surplus in the balance of trade by year’s end. In addition, investors in neighbouring United Arab Emirates sought to provide much of the $800 million destined for a new 7.2-km (4.5-mi) beachfront-development scheme west of the capital.

In a regional first, women were appointed to head the Ministries of Tourism, Social Development, and Higher Education. In addition, all 83 members of the national consultative assembly were elected directly for the first time. Previously, the government had selected the voters, and only 25% of the electorate could vote in a given election. The number of members in the country’s appointed state council was expanded to 57, and the terms of both the elected and appointed councils were extended from three to four years.

Oman remained apprehensive of U.S. and Israeli threats to neighbouring Iran regarding its nuclear program and expressed displeasure at stated U.S. intentions to pressure Arab and Islamic governments in general to conform to Western notions of governance. Oman declined to commit troops to Iraq and questioned the legitimacy of Baghdad’s new leaders. Oman and Yemen agreed on the demarcation of their maritime boundary, completing the delineation of their borders on land and sea, and the two countries launched discussions to establish a free-trade zone.